How long to keep state tax returns

Tax season eventually comes to a close, but you'll always have your tax return and other paperwork to serve as a reminder of that time -- at least until you throw it out. Hopefully, you're not doing that the second you've gotten your refund or paid your tax bill for the year, though, because that could cause huge problems if the IRS decides to pay you a special visit.

That's not to say you can never throw out your old tax paperwork. You just need to know when it's safe to do so and how to get rid of those documents the right way. There are three things you should know before you decide to dump your old tax returns in the trash.

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1. You need to keep your tax returns for at least three years

The IRS recommends that everyone keep their tax returns for at least three years, or two years from the date you paid your taxes, whichever is later. This way, if it decides to audit you, you should have all the necessary paperwork available. Throwing these documents away ahead of schedule only hurts you because if you're audited, the government could disallow legitimate tax deductions if you don't have the paperwork to prove that you were eligible to claim them. 

You should hold onto your tax return for six years if you failed to report a substantial amount of income on your tax return, but hopefully, this doesn't apply to you because you should never try to hide income from the government. The IRS recommends holding onto your tax returns for seven years if you filed a claim for a loss of worthless securities or a bad debt deduction, and you should hold onto your tax paperwork indefinitely if you did not file a return for a given year or if you filed a fraudulent return, which again, you're hopefully not doing.

2. Always verify the accuracy of your Earnings Record first

The Social Security Administration keeps track of your income in your Earnings Record, which you can access by creating a my Social Security account. This is the income that's ultimately used to calculate your Social Security benefit when you're ready to claim, so it's important to make sure it's correct. It usually is, but little things such as accidentally transposing digits in your Social Security Number when filling out paperwork with a new employer or forgetting to notify your company about a name change can result in income that's reported incorrectly or not reported at all.

If there are errors in your Social Security Earnings Record, you'll need your old tax returns to prove your real earnings to the Social Security Administration. You must submit a copy of your old tax return for that year or any other paperwork you have with a Request for Correction of Earnings Record form. If you don't have any documents to prove your claim is legitimate, the Social Security Administration may not do anything about it, and then you could lose tens of thousands of dollars or more in Social Security benefits over your lifetime.

3. Shred old paper returns so identity thieves can't access them

Deleting digital copies of old tax returns is easy, but if you have old paper returns, you can't just put them in the trash. They contain a lot of personal information about you that identity thieves would love to have, such as your birth date, Social Security Number, employment information, and address. With this information, it's easy to open up new credit accounts in your name, and that can create a major headache for you later.

When you've verified that it's time, always shred old paper returns, or dispose of them in some other way that will ensure no one else can recover information from these documents. 

You might decide to get rid of your old paper returns but retain digital copies just in case you'd need them for some reason in the future. If you decide to do this, make sure you have a password on your computer so that unauthorized users cannot access your important financial documents.

Your old tax returns don't become irrelevant the second you've paid your tax debt or gotten your refund for the year. Keep in mind the three points listed above before throwing yours out so you don't run into any problems later.

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Filing tip: To avoid delays in processing your return, claim only the credits you can provide the required documentation for.

Keeping good records is the most important part of your tax responsibilities. Generally, you must keep records and supporting documents for at least three years after you file a return. These records document what you will claim on your income tax return, including:

• all your sources of income,
• the total of any withholding and estimated tax payments you make, and 
• the expenses you may be entitled to deduct.

Your good recordkeeping also helps you determine which valuable credits and deductions you qualify for and provides documentation if we ask you for additional information.

At the beginning of each tax year and before you claim a credit or itemized deduction, review these checklists to be sure you're keeping the records you need to get the credits and deductions you deserve. Each checklist includes detailed information about the proof we require if you need to send us additional information after you file.

Note: If we send you a letter requesting additional information, send us copies of the documentation outlined in the checklists; do not send it with your return.

Checklists for acceptable proof of:

Resources

• Recordkeeping for businesses
• Individuals home

Updated: September 8, 2022

Taxpayers should keep their tax returns and supporting documents related to their tax returns for as long as their state tax agency and the Internal Revenue Service have to perform an audit. These deadlines are known as "statutes of limitations." For most people, this means keeping your tax records for at least three years from the date you file your tax return or the due date of the tax return, whichever is later.

That's the most common deadline for the IRS, but the agency can extend this period to six years under some circumstances. This can happen if the income you report is more than 25% off from what it actually was.

Most states follow this same three-year rule of thumb, but some have longer statutes of limitations. Here's how some states differ from IRS rules.

• It’s recommended that you retain tax records and documents for at least as long as the IRS and your state have to audit you.
• You can be audited for up to six years by the IRS if the income you report on your return is more than 25% less than what you actually took in. State tax rules can vary by state. 
• Most IRS audits must occur within three years, but six states give themselves four years. Louisiana gives itself three and a half years. 
• Statutes of limitation can restart with your state if the IRS adjusts your federal return or if you file an amended return. 

Several state tax authorities share statutes of limitations similar to that of the IRS but with differences in the details.

Taxes must be assessed within three years after the latest of these three dates in Kansas:

• The date the original return is filed
• The date the original return is due
• The date the tax due on the return is paid

An assessment means that the tax authority can review or audit the return. It can add additional taxes due when and if mistakes are uncovered.

Taxes can also be assessed in Kansas up to one year after an amended return is filed if it's filed later than the dates above.

Like the IRS, these states give themselves three years to audit returns and assess any additional taxes that are due. This period begins on December 31 of the year for which the tax is due, unlike with the IRS.

Minnesota's statute of limitations is three and a half years from the date a return is filed or the date the return is due, whichever is later.  

Oregon's statute of limitations is three years after the return is actually filed, regardless of whether it's filed on or after the due date. For example, if the return is filed earlier than April 15, the limitations period will end earlier as well.

This state normally has three years from December 31 of the year in which the return was filed to assess taxes. That limitation can be extended by up to two years if there are certain revisions made to your taxes after the initial filing.

Keep those tax records on hand, and file those tax returns if you missed a return for a given tax year. The sooner, the better!

The following states give themselves four years after a return is filed or required to be filed, whichever date is later.

• Arizona
• California
• Colorado
• Kentucky
• Michigan
• Ohio

The clock begins ticking on April 15 if your return is due April 15, even if you file in February.

These states allow for exceptions for certain types of income and tax liabilities. An exception can exist if you request an extension of time to file your federal tax return.

Keep in mind that these deadlines relate to the amount of time a state has to get around to auditing a tax return and assessing any additional taxes due. They generally have longer to collect any tax that you owe according to your initial tax return, sometimes much longer.

The statute of limitations for the federal government to collect tax debts is 10 years. This deadline applies to tax returns that were filed with taxes due, but where the taxes have not yet been paid.

Several states mirror this deadline, but some have much longer, and some have less time to initiate collection actions. California and Illinois have 20 years to initiate collections. It's also 20 years for the state to impose a tax lien in Missouri.

Some states have shorter statutes of limitations. It's three years in Iowa, but only if you filed a tax return. It's also only three years in Utah, as well as in Nebraska unless a Notice of State Tax Lien is recorded with the government.

The statute of limitations might not cover every situation. Every state's statute has its caveats, even those that generally follow the IRS rules. For example, the statute of limitations for your state tax return might also restart if you've amended your federal return, or the IRS adjusted your return.

Signing any type of payment agreement or offer in compromise with the state or the federal government can also reset the state statute of limitations. 

The statute of limitations does not apply to fraud or tax evasion. Federal law also extends the statutes under these circumstances. There is no statute of limitations for civil tax fraud.

These deadlines apply to tax returns that were filed but the associated taxes were never paid. What happens if no tax return was ever filed? The IRS can successfully argue that the statute of limitations was never started in such a case. No return was filed to trigger it.

Debt.org recommends retaining copies of all your filed tax returns, bank account registers and statements, receipts for tax-deductible expenses paid, home mortgage statements, brokerage statements, and retirement account records. Basically, you'll want to hold on to all documentation that relates to anything you reported on your tax return.

The IRS suggests that you retain records forever or at least until the matter is resolved if you fail to file a tax return for a given year or if you file a fraudulent return. Most states follow guidelines similar to those recommended by the IRS.